July 29, 2011
Will the new fuel economy rules actually work?
This morning, Barack Obama is scheduled to unveil one of the biggest policy accomplishments of his term—though it certainly won’t seem that way.
After the president gives his televised remarks on the debt ceiling crisis, the White House is expected to announce—at a much sleepier Washington Convention Center venue—that it has finally struck a deal with the auto industry on extending new fuel-economy standards out to 2025.
So far, the reaction has been notably tame. Environmentalists aren’t rejoicing in the streets because, in the grand, daunting scheme of preventing global warming, this is just a small first step. And Republicans are barely carping because, for once, there’s not much they can do to block Obama.
But as a policy to cut down on America’s oil use, this could turn out to be one of the biggest in decades—if it actually works.
Broadly speaking, the deal will require automakers to get their car and light-truck fleets to average 54.5 miles per gallon by 2025—a bit below the 62 mpg that greens were pushing but far higher than the current average of 27.3 mpg.
In the past, proposed increases to CAFE standards only a fraction of this size involved knockdown brawls in Congress (automakers managed to stymie increases all through the 1990s.) This time was different: Thanks to a 2007 Supreme Court ruling that extended the existing Clean Air Act to cover greenhouse gases, the Obama administration didn’t need Congress. It had the legal authority to make these decisions largely on its own.
The big trump card here, however, was California. Under the Clean Air Act, California is allowed to strike out on its own and set tougher air-pollution rules than the feds—a legacy of Los Angeles’ smog battles in the 1960s. So, while Ford, GM and Chrysler were all lobbying against rules they called too strict (and had some success), there was a limit to what they could do. If the final federal rules ended up too weak, California was threatening to impose its own, tougher standards, and a dozen other states would follow. Automakers had a choice: Deal with the Obama administration, which has been receptive to their input, or face the wrath of blue states such as California, which haven’t.
So what will the fuel-economy rules actually achieve? Judging by an earlier EPA estimate, the regulations could reduce U.S. oil consumption by nearly 2.2 million barrels per day by 2025—roughly equal to all of our current daily imports from Saudi Arabia, Venezuela, and Kuwait. And it won’t require wildly futuristic technology. An analysis by Boston Consulting Group concluded that automakers could reach the interim targets by tweaking existing combustion engines: making vehicles lighter, using fewer cylinders and direct gasoline injection, or turbocharging engines. Manufacturers could also churn out more hybrids. One Transportation Department report predicts that about one-third of new cars will be hybrids by 2025. Depending on the fine print, the new rules might even provide incentives to help kickstart the plug-in electric market.
Trouble is, it’s not always that simple. The cars that actually drive on the road rarely achieve the mileage advertised. The laboratory tests used to measure mileage—testers run the cars on giant treadmills—were largely designed in the 1970s for less powerful cars that didn’t have air-conditioning. Jim Kliesch, a senior engineer at the Union of Concerned Scientists, told me that a sticker mileage of 54.5 mpg, for instance, would likely translate into about 39 mpg on the road. (Seehere for a wonkier analysis.)
More important, it’s always possible that the rules won’t be as sturdy as advertised. Automakers are constantly trying to find ways to exploit CAFE loopholes. One old trick was to design cars, such as the Subaru Outback, so that they could be classified as light trucks, which historically had laxer mileage rules. A few years ago, UC Davis economist Christopher Knittel found that early CAFE standards gave automakers perverse incentives to build bigger, hulking vehicles. That loophole was closed in 2007, but it would be naive to pretend that similar gray areas won’t be found.
“We’ll try to be vigilant, but a lot of the burden here is on the auto industry to set aside their regulatory battles and just focus on making more fuel efficient cars,” says Roland Hwang of the Natural Resources Defense Council. (Some environmentalists are already concerned that the rules provide for a midterm review after five years, which could allow automakers an opening to lobby again for looser standards.)
But that’s all just to say that CAFE standards aren’t flawless—not that they don’t work. It’s true that most economists will insist, again and again, that it would be much more efficient to just impose a higher gas tax at the pump and let the market figure out what cars people want to buy. It’s also true that CAFE doesn’t give people incentive to drive less, the way a gas tax would. But, at the same time, a gas tax isn’t on the table. And, bumbling or no, CAFE has been very effective historically at reducing gasoline consumption and boosting mileage—often more effective than high oil prices. At any other time—and if it weren’t for the looming financial apocalypse right now—that would be considered a big deal.
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